There are only three ways to fund the basic income grant – BLSA

‘If we want to put out more welfare and cover more people, whether it’s a BIG or (any) social welfare intervention, the solution is still growing the economy’: Busi Mavuso – CEO, Business Leadership South Africa.

FIFI PETERS: The BIG debate is buzzing again; ‘BIG’ of course refers to the Basic Income Grant, which has been proposed as a way to alleviate the huge inequalities in this country, the huge level of poverty, and joblessness. The hope is that the grant would encourage people to use it for proper uses such as finding a job and so become active participants in the economy. But the question is how it will be funded in a way that doesn’t break government’s kitty or slow [down] economic growth?

We have Busi Mavuso, the CEO of Business Leadership South Africa on the Market Update for more. Busi, thanks so much for your time. As I understand, Business Leadership South Africa commissioned the latest study into BIG to be done by Intellidex. What is interesting is that, after the findings, just reading your latest newsletter this morning, you seem to have concluded that BIG should be done away with because we cannot afford it. Is that correct?

BUSISIWE MAVUSO: No, it’s not, Fifi. Thank you very much for inviting me. We are not saying BIG should be done away with. I think we realise and appreciate that there is a strong social, moral and ethical application, and a case that can actually be made for BIG. So the paper does not at all question the ability of BIG to improve the welfare living standards of its recipients, because I think that is a foregone conclusion. I think the only issue we are raising is that these issues cannot be the only consideration, as the idea has serious implications for the country.

So what we do in the paper is that we rather seek to address, therefore, the ability aspect. We address the fiscal capacity aspect.

We address the issue of how we implement this without undermining the growth and employment-creation agenda of the country.

I think if you look at the paper, you will see that it only says BIG can only be funded in three ways: we either cut expenditure, or we issue more debt, or we raise more taxes. I think we are [asking] is there room actually to do any of these things? We go into detail in terms of looking at what ‘cutting expenditure’ means? What does ‘issuing more debt’ mean? What does ‘raising taxes’ mean – and what are the implications for all those options?

And then we go further, Fifi, and ask what some of the options are that will be sustainable and free of the unintended consequences that may be more serious than the problem being addressed. What is it that we should do as a country so that while intervening in this manner we don’t lend ourselves in more hot water?

I think that is all we seek to do, just to say that there are more than one, two, three or maybe four options. What are those other options and what do they look like and what implications do they therefore bring for South Africa’s fiscus and our ability to actually fund this programme?

FIFI PETERS: Ma’am, when I read your newsletter this morning, it seemed as though you seemed to have come to the conclusion that there was no winning here. You argue that cutting government expenditure or reprioritising government expenditure from other areas like, for instance, the National Health Insurance and the implications that that would have [is] not presenting itself as a viable solution. Issuing  more debt – you argue that our debt position is already precarious as it is, and therefore issuing more debt is also not a likely solution, especially with the favourable ratings commentary that we’ve received recently from rating agencies.

And then even the other one of raising taxes [is] making the argument that even that is not the best way to do this sustainably because if you raise taxes, arguments are being made that people will go elsewhere. You’ll have emigration as a result of the tax environment here being too high.

Read: SA basic income grant may drive emigration, study says

So I’m a bit confused as to what you are saying or what revenue or funding avenue we have at this point in time that can go towards BIG. What is it?

BUSISIWE MAVUSO: Absolutely. Fifi, you are absolutely correct, because those are the three ways that we actually mention – those of cutting expenditure, issuing debt and raising more taxes. Those are the only three ways in which a government raises money – not just the South African government, but governments all over the world. If you need to get more money and redirect it towards a particular intervention, those are the only three areas that you actually have available as government.

As you rightfully say, we looked at all of those three and looked at what that means for South Africa. I think we therefore come to the conclusion that all these three actually do not make sense, and we don’t have the fiscal room to deliver on those, as it were, because our fiscus is what it is. But what we are arguing is that we need to focus on interventions that will grow the economy.

Fifi, we need to look at what does growing the South African economy beyond the 2% growth rate that we’ve seen over the past two years mean? What are those interventions that are actually going to ensure that we start growing the economy at a higher rate than the population is currently doing? That is what is at stake here. The reason why we find ourselves in this type of fiscal environment is precisely because we’ve been in a demographic recession at least for the past six years, where our population is growing at a much higher rate than our economy has been growing.

So to what extent do we therefore put in place the structural reforms that we’ve been talking about as business, which will ensure that we attract investment, investment that will ensure that our economy starts growing at a higher rate than it is currently doing? Because, when the economy grows at a higher rate, we know that we are in a better position to address the unemployment, which is currently sitting at 46% in terms of the expanded definition, and the 65% youth unemployment, as it were.

So it’s clear, Fifi, that there are no shortcuts to dealing with the structural issues that we’re currently facing as a country.

But when you look at it you’ll know that you cannot lift people out of poverty through social grants. Social grants are a means to an end. They are not an end itself.

So South Africa therefore needs to look at what sustainable interventions are available to us. I think these young people – the 65% youth unemployment that we’re sitting with – are not looking for grants; they are looking to be gainfully employed. And the solutions that we need to be putting in place as a country are precisely those interventions.

But I think we have also seen, leading up to the 2008 fiscal environment that we were in then, we said we are sitting in an environment where the economy grew strongly, where it enabled the dramatic expansion of social spending, including creating one of the largest social-grant systems in the world. And we could do that because the economy was growing at about 6% or 7%. So if we want to put out more welfare and cover more people, whether it’s a BIG or it’s whatever social welfare intervention, the solution is still in growing the economy. We can’t run away from that. We can’t seek to actually putting more people on the welfare system when the economy is growing at the level at which it is growing.

So growing the economy therefore seems to be the only intervention and solution for us to be able to get ourselves out of this economic rut that we actually find ourselves in, and that is what the paper argues as it were.

FIFI PETERS: I hear that. And, I agree with you a hundred percent; social grants in themselves cannot be the means to an end; growing the economy needs to be what we’re looking at in terms of a long-term sustainable solution. But my question is: what happens today to those millions of South Africans who don’t have a form of income, who don’t have a livelihood because they don’t have a job, who only rely now, thank goodness, on the extension of the R350 Covid-19 relief grant, who rely on that among the other grants that they get. So what are you saying to those people that should happen today?

BUSISIWE MAVUSO: I think even if we were to go and borrow money, it’s not something that is actually going to happen today. Of course we know that the process of actually trying to take on more debt, or raising more taxes, or cutting expenditure, is not something that can happen tomorrow. So let’s agree that whatever [the] intervention, whether we are raising taxes or we are issuing more debt or we are cutting expenditure, that in and of itself is a process, the same way that growing the economy is a process. We therefore have a choice in terms of what it is that we’re actually going to be putting our time, energy and efforts into.

Are we going to be putting our time, energy and efforts into growing more money, money that is actually going to come at much higher cost because we are a junk-status country? Is that the solution, or should we be actually deploying the same effort in terms of bringing investment into the country?

Because, you see, it doesn’t matter what kind of environment we find ourselves in.

The solution cannot be a populous one. The solution cannot be one that seeks to destabilise government finances. The solution cannot be one that actually sets us on a course and on a path of collapse into the arms of our creditors. The solution cannot be one that is actually going to compromise our institutional sovereignty or rather our financial sovereignty as a country. The solution cannot be one which will have disastrous social consequences.

So if we agree that all these interventions are going to take time, then [what] is the best option in the long run for the country? Because [if] we take time to raise debt, we’ll find ourselves in a worse-off situation. We’ll still take the same amount of time to try and bring investment into the country and implement the structural reform agenda, and that sets us on a path of more sustainable economic trajectory, as it were. So I think it’s all in the options. There is no shortcut intervention in what we’re trying to do.

FIFI PETERS: I imagine that you would have read the president’s newsletter this week. I found it fascinating. I found it to be an interesting ‘beef’ between a former head of state and a current head of state, because last week we heard from a former president of South Africa, Thabo Mbeki, talking about the fact that this government made promises for a social compact that would grow this economy and create jobs and reduce poverty – and it hasn’t delivered on it.

Read:
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So on Monday, today, our current president wrote about the social compact and how it would essentially take all agents to come on board to deliver on a social compact that would live up to its objectives and its promises. One of the things that the president wrote about in his newsletter today was the fact that business essentially had to come to the party a lot more in terms of carving out what the successful social compact would be.

I’m interested in what you think that role for business is, because today we read about, for instance, the CEO of Mr Price getting a total remuneration of around R56 million because his salary needed to be benchmarked to what’s happening in the industry. We also read about the former CEO of Telkom having been paid R20 million as a retention bonus, and this within a society that is ranked the most unequal in the world.

Read:
Mr Price grants CEO R33m bonus as he’s ‘not paid enough’
Telkom pays departed CEO R10m ‘retention bonus’, in the year he resigns

A lot of people that I’ve spoken to, Busi, have said that such increases in executive pay are unreasonable in this environment. I’m interested in your comment on that, but I suppose more importantly on the role that you see business playing in carving out the social compact that ultimately in this long term will grow the economy and reduce the level of poverty and joblessness.

BUSISIWE MAVUSO: Fifi, within the social compact discussion concerned, we have already had six tries at this, if not seven. Remember in 1999 we had the Job Summit social compact, and that did not yield the results that we actually wanted. And in 2003 we had the Growth and Development Summit, which also did not lead to the outcomes that we wanted. In 2009 we had the Framework Agreement at Nedlac, and I think that was another social compact intervention that didn’t give the results. In 2011/2012, we had the Social Accord, social compact, which also didn’t deliver results. In 2018 we had the Job Summit social compact, which actually didn’t deliver results. Last year we had the Eskom social compact, which I think continues to be a work in progress, but I think it can be argued that that also [didn’t deliver results]. And now in 2022 we’re entering into yet another social compact.

So my interest – because I think we are having this discussion, if I’m not mistaken, later this week at Nedlac with all the social partners – my interest would be how we actually structure this social compact such that we learn from the mistakes that we [made] in the past? Why did those other five or six – however many I have just named – social compacts fail? What is it about those interventions that actually did not get South Africa where it wanted to be from an outcomes perspective?

But if you just look at the current environment and if you look at what some of the issues are, capital is like water – it will always follow the path of least resistance.

We’ve been having a conversation for instance recently around intervening in the energy-security space. And we actually [ask] how we actually remove some of the constraints to ensure that the private sector can meaningfully participate in the electricity-generation environment that we actually need to address. How do we plug the six gigawatt gap?

[From] a lot of the conversations, there is a lot of interest, there is the balance sheet that can actually fund the interventions towards stabilising our energy environment. But when you look at the constraints, when you look at the environment, when you look at the regulatory rigidities, when you look at the environment within which we are supposed to be investing as the private sector, that has actually not been made conducive.

Fifi, if our solution is to try and get investment into the country so our economy can start growing at the right level, you just have to look at what environment will that investment be coming into. What are the basics that any business will need to have in place to ensure that it can successfully operate a lucrative business in the country? And those fundamentals are the network industry.

No company will be able to do well in an environment where there isn’t energy security. No company will do well in an environment where the ports are not functional. No company will do well in an environment where the rail system is failing. No company will be able to operate in an environment where the telecom infrastructure is not working. Yes, we know we have now auctioned in the spectrum, but we know that we haven’t allocated the spectrum because of those issues.

So Fifi, those are just the basics. When I say as an investor that I’m going to invest in the country, the R333 billion that was committed in the investment conference in April, 2022, the condition precedent and the unspoken quid pro quo that those investors made the investment behind, was that ‘you are going to have to give us a conducive environment within which to operate’.

Now, if all of those that are just made, the network industry [is] dysfunctional, how do you begin to have an investment discussion? How are you hoping that you are actually going to get the economy to grow at the right level?

So you can see that from a basic perspective, when I speak about structural reforms as business, this is precisely what we’re talking about. And when I speak about capital being like water, that it follows the path of least resistance, if South Africa is going to make it difficult for investors to actually invest their R333 billion here, the other gateway to the African continent is Kenya. It is Nigeria. It is Rwanda, it is Ghana, it is other economies in Africa.

At the moment, when you’re looking at what’s happening in the ports, you’ll see that the Durban port, the Transnet port, because of its dysfunctionality is being bypassed. Companies are going to the Mozambique port – and you must see what’s happening at that port. There is more money that is being brought in to try and deal with that demand that is coming from South Africa. So [what] are we doing therefore to ensure that those basics are correct? As we have the social compact discussions, if you’re saying that business is going to have to come to the party and invest, you don’t have to beg business to invest. That is why they sit with the huge balance sheet that they sit with, so that they can invest, not so that the money can sit in the bank. But you have to make the environment conducive.

So my view is that a social compact discussion that doesn’t address these fundamentals is useless, because then on what basis are you basing the social-compact discussion? And when you look at why the other social-compact discussions have failed, you will see that it’s precisely because we continue to fail to have the fundamentals right in this country.

FIFI PETERS: Busi, I can’t argue with you there. Point strongly taken. Ma’am, thanks so much for your time. Busi Mavuso is the CEO of Business Leadership South Africa.

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We need a different way of measuring things. I’ve always said that our 36% unemployment is bogus. No economy runs for decades with 36% unemployment. There is 20% in the informal economy, untouched by statistics. There should be a way of looking at grocery revenue per capita and deducing that 25m people are not getting along on R200 per month? We have so much data that we should be able to draw better conclusions.

As to BIG, if you add up free schooling, university, health, housing, basic water & electricity our government social support runs something like R35k per year already. That was a number from finance minister speech Feb last year.

Depending whose numbers you use the BIG amounts to double Eskom revenue per year. So that is the same as not only making electricity free for every household and business, but PAYING every household and business for what they consume. Insane

End of comments.

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